The Problem

How America defines and measures poverty has changed very little since the 1960s, with the prevailing formulation—which determines the “poverty line”—relying only on the cost of subsistence food. This measurement is a poor proxy for household needs, as the price of food has declined relative to other goods and services and the cost of housing has risen. Moreover, it does not take into account factors such food assistance, tax credits, and geographic cost-of-living differences.

The Proposal

To more accurately measure and support those living in poverty, a modernized formula would account for the costs of food, clothing, housing, and utilities, as well as cost-of-living variances. It would also incorporate tax obligations and credits, income transfers, and financial demands that limit available funds, such as child support payments, out-of-pocket medical expenses, and work-related expenses such as transportation and child care.

Abstract

The authors recommend the adoption of a new poverty measure, along the lines recommended by the National Academy of Sciences (NAS), in order to provide a more accurate measure of economic need in the United States. The current poverty measure relies on 1955 data and a methodology developed in the early 1960s. The current measure is not sensitive to changes in tax policy, in-kind benefits, work expenses, or medical payments; all of these have changed substantially over the years and affect the well-being of low-income families. The authors indicate why the NAS approach is superior to other possibilities and discuss the specific decisions that must be made to effectively implement a new poverty measure. They present data that indicate how such a change could affect poverty rates. They recommend a new NAS study to develop a measure for a “decent living standard” at a level above the poverty level, and recommend additional federal data collection and research.